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Geithner Defends Using TARP While Citigroup 20 Billion Offering May Signal Top Like BX In 2007

|Includes: The Blackstone Group L.P. (BX), C, CHK, ENDP, GS

I cannot help but watch this market like I am watching a cheesy horror movie which is both disgusting, funny and scary all rolled up into a perfect 90 minutes. The problem is, this 90 minute horror flick seems like it is lasting an eternity and it just gets worse and worse as it continues. Today we got jobless claims. The number of people filing claims for state unemployment benefits rose by 17,000 to a seasonally adjusted 474,000 in the week ending Dec. 5. This was basically in line with expectations and continues to show improvement from the side of being below the 500,000 key level on initial claims. Continuing claims continued to fall moving towards the 5 million level. The key with continuing claims is how many of these claims are falling off because people are getting jobs while how many are falling off because they can no longer receive benefits as their time has run out. Remember, you can only collect unemployment for so long before you are told to go 'blank' yourself.

The markets opened the day on a solid gap up. Technically speaking, the SPY (NYSEArca: SPY) gapped over the intraday ten minute 200ma and pushed through gap fill from 12/07/09. However, this move was not confirmed. This means there is a high possibility of a fall back down. Sure enough, the SPY fell off this lack of confirmation signal and moved to the 200ma. From the 200ma, it bounced off course and moved back towards the highs of the day. This move back to the highs of the day coincided with Treasury Secretary Tim Geithner as he spoke on Capitol Hill on using TARP funds for other things that what they were explicitly designated for. The banter has gone back and forth, but ultimately they will most likely be able to steal the tax payer’s money once again and spend it, creating 50,000/year jobs by spending over 100,000. You have to love the math. In any case, print and spend government continues to rule the roost for now as the debt us and our kids will have to pay grows by the trillions. Just wait till the dollar collapses in a few years and taxes jump in a major way. Trust me, that nest egg we all are trying to build will be worth a lot less in real dollars in 5 years.

On to a few other interesting aspects of the market. Financials like Goldman Sachs (NYSE: GS) are weaker today along with real estate like Simon Ppty Grp Inc. (NYSE: SPG). It seems like the money flow is moving out of financials and real estate on the back of Citigroup, Inc. (NYSE: C). Citigroup, Inc. said it was likely to pay back TARP as well by raising 20 billion in an offering. This has to be looked at as very significant. All the worst companies are trying to pay back TARP. Why? Clearly the market is at the perfect point to do so. Not only do these companies want to pay huge bonuses and have no oversight (again), but the market is ripe for the picking. Money to financial institutions is ripe for the taking and Citigroup, Inc. knows that. If they wait too long they know the market will most likely collapse again due to the new bubbles the government/Federal Reserve are building. Their policy? Do it now and grab the money and run. I do not blame them; it is the perfect time to do it but also probably signals the top of the markets here as well. I remember clearly when Blackstone Group (NYSE: BX), rushed their IPO to market back in June of 2007. This was a highly anticipated IPO and them rushing it to market essentially pegged the top of the markets. Sure enough, we know the history following.

Some small caps to watch. Pacer International, Inc. (NasdaqGS: PACR) looks attractive off the beautiful bull flag pattern it has made since the big one day run-up on November 4th, 2009. In addition, Labopharm Inc. (NasdaqGM: DDSS) continues to move higher after it was featured as my Hidden Gem pick at $1.55. It has hit a high of $1.87 as of today and continues to get discovered as a no brainer into the FDA meeting on their major drug on February 11th, 2010. This should continue to see accumulation going into that meeting as the price should continue to appreciate.

The markets continue to trade on the positive side today though are lacking continued upside as of now. The dollar is flat on the day keeping gold and oil in check. Natural gas exploded to the upside on inventory reports today. Stocks like Chesapeake Energy Corp. (NYSE: CHK) are reaping the rewards of a beaten down but popping natural gas price.

Gareth Soloway
Chief Market Strategist